Is Economics A Gun That Only Fires Left?

Sometimes it seems like economist’s pet principles are applied selectively, in such a way that they attack ideas generally endorsed by the left end of the political spectrum. This isn’t to say economists themselves are ideologically inclined toward any opinion; merely, that key aspects of their own framework, and the way they present these aspects, lends itself to a more ‘right-friendly’ way of thinking.

In part, the issue is merely one of a disparity between how economists present issues to the public and how they speak to others in academia. Dani Rodrik noted this issue in his book The Globalisation Paradox. Here he describes a situation where a reporter asks an economist whether free trade is beneficial:

We can be fairly certain about the kind of response [the reporter] will get: “Oh yes, free trade is a great idea,” the economist will immediately say, possibly adding: “And those who are opposed to it either do not understand the principle of comparative advantage, or they represent the selfish interests of certain lobbies (such as labor unions).”

Rodrik then contrasts this with how such a question would be answered in the classroom:

Let [the student] pose the same question to the instructor: Is free trade good? I doubt that the question will be answered as quickly and succinctly this time around. The professor is in fact likely to be stymied and confused by the question. “What do you mean by ‘good’?” she may ask. “Good for whom?… As we will see later in this course, in most of our models free trade makes some groups better off and others worse off… But under certain conditions, and assuming we can tax the beneficiaries and compensate the losers, freer trade has the potential to increase everyone’s well-being…”

This adherence to basic, market-friendly principles over nuance can be found often in ‘pop’ economics: for example, economist Paul Krugman does it in his book Peddling Prosperity. The book is intended as an survey of nonsensical ideas from both the left and the right, remedying them both with a cold hard dose of facts, plus some basic economics. However, Krugman treats the left and right somewhat asymmetrically: with the right, he primarily opts for facts, whereas with the left, he uses economic principles

This is quite possibly because the right’s arguments, though they are taken to an extreme, have economic principles on their side, while the left’s do not. The ‘supply side’ economics that Krugman takes issue with is really just an extreme statement of the well known principle of deadweight loss, which suggests that taxes decrease output. If taxes reduce output by enough, then it logically follows that not only output, but overall revenues might fall if we raise taxes. Krugman would not question the principle, so he spends several chapters documenting evidence against the idea*.

Krugman then follows this up with a section berating the ‘strategic traders’, endorsed by Bill Clinton and others on the centre-left. Strategic trade suggested a role for government policy in promoting industry, because various clustering effects, economies of scale and positive feedback loops could mean that the initial wave of government investment could kick start an industry. As Krugman himself notes, such dynamic effects and ‘historical path dependence’ could render comparative advantage obsolete, since comparative advantage posits a more fundamental, innate reason a country produces a particular good, one that cannot be changed with policy (one that may be more applicable to agriculture).

Yet, in contrast with his section aimed at refuting the right, Krugman offers scant evidence suggesting government intervention doesn’t work. Instead, he effectively restates the theory of comparative advantage, coupled with a typical story to illustrate it. This is despite explicitly suggesting it might not be applicable in the previous chapter. When pushed, Krugman is prepared to fall back on his pro-market principles, even in areas where he knows they may not apply.

William Easterly does something similar in his book The Elusive Quest for Growth. The book is a survey of various policies than have purported to be panaceas for development, such as education, investment and population control. (As you can see, economists really love writing their “I’m an economist, here’s how it is” manifestos). Easterly finds every supposed development panacea wanting based on the available evidence, which is fine. However, occasionally he supplements his arguments with an excruciating example of ‘economic logic’ that always looks out of place.

For example, in the section on increasing availability of condoms, Easterly essentially makes the argument ‘how could people be lacking condoms? If they were, the free market would provide them!’ I am reminded of the joke about the economist who does not pick up a £10 note from the ground, because, if it were really there, somebody would already have picked it up. Easterly is a smart guy with a lot of concern for the poor, and I have a hard time believing he wouldn’t agree that a country might lack the institutions to deliver condoms, that people might lack the education to know why they’d need them, that it might conflict with their beliefs, etc. But the ease with which he can apply a pet economic principle is just too tempting, so he ignores these factors.

Another example is where Easterly asserts that population growth cannot be a problem, because “an additional person is a potential profit opportunity for a person that hires him or her” and as a result “the real wage will adjust until the demand for workers equals the supply.” It’s quite clear things don’t function this smoothly in labour markets even in developed countries; for theoretical reasons as to why, Easterly need look no further than John Maynard Keynes; failing that, modern work on labour market frictions might prove sufficient. Again we see a neat but overly simplistic principle applied when even the economist themselves surely knows better.

So it is not uncommon for economists to prefer their more ‘free market’ principles over nuance when writing for a popular audience**. But is this problem only limited to popular economics? Economists seem to think so; to them, the issue is primarily one of communication, and knowing the limits of your models. This is fine as it goes. However, there are reasons to believe this bias extends into the murky depths of academia.

In my opinion, there is one major culprit of selective application in economics, and it is one that cannot be explained by economists simplifying their work for public consumption: the Lucas Critique. The Lucas Critique suggests that adjusting policy based on observed empirical relationships from the past will alter the conditions under which these observations were generated, hence rendering the relationship obsolete.

Unfortunately, in practice, Lucas’ version of the critique seems to have been used to beat ‘Keynesians’ over the head, rather than being universally applied as a tool to further understanding. To illustrate this, here are some areas I think Lucas critique-style thinking could be applied, but hasn’t:

Milton Friedman’s methodology. If a ‘black box’ theory corroborates well with past evidence but we aren’t entirely sure the internal mechanics are accurate, there’s no reason to believe the corroboration will hold, or to know how the mechanics of the system will change, if we change policy.

Nominal GDP Targeting (NGDPT). This hasn’t caught on much on the left (in my opinion, for primarily ideological reasons: it’s anti-Keynesian, it partly absolves the private sector of responsibility for recessions). But it doesn’t seem to have occurred to proponents of NGDPT that we must ask if the relationship between inflation, RGDP and NGDP will break down if we try to exploit it for policy purposes. This is despite the fact that we are talking about precisely the same variables as the Phillips Curve, the primary theory to which the Lucas Critique was initially applied.

The supposed “deep parameters” of human behaviour on which Lucas suggests we construct economic models, such as technology and preferences. For a neoclassical economist, you are born with a set of preferences and you die with them, while in many models technology is a vaguely defined exogenous parameter. Yet a single example can show that both of these things can change with policy: government investment, which is at the root of a large number of technological break throughs. These break throughs have often resulted in new products, creating preferences that otherwise wouldn’t have existed. A model with fixed, exogenous parameters for technology and preferences is therefore hugely fallible to policy changes.

The fact that the critique hasn’t been applied to these examples leads me to believe it’s often only used to preserve existing economic theory. In fact, the critique itself is really just a narrow version of the more general principle of reflexivity, noted by many before. Reflexivity is an ever-present problem that suggests an evolving relationship between policy and theory, not a principle that means we can fall back on economist’s preferred methods.

Is the Lucas Critique the only culprit? Well, I’ve found economists are generally critical of the assumptions and mechanics of heterodox models, despite appealing to Friedmanite arguments when questioned about their own. I’ve also found economists (okay, one) appeal to how businessmen really behave when defending their theories despite not paying much credence to alternative theories based on the same principle, such as cost-plus pricing. So maybe economists need to air out their theories and principles a bit, rather than simply applying them where it suits them.

Economist’s simple stories often capture some truths, which is why they will defend them to the death. But too often this becomes a matter of protecting a core set of beliefs, and being unwilling to apply them in new ways or even abandon them altogether. So economists end up deferring to their framework when it isn’t appropriate, or only interpreting it in their preferred way, particularly when they communicate their ideas to the public. The result can be that misleading conclusions about the economy remain prominent, even when economist’s own frameworks, interpreted completely, don’t necessarily imply them. Perhaps if economists were more willing to open up their theories, which can sometimes feel like something of a black box, these misinterpretations would be exposed.

*I won’t delve into the evidence here because it’s not the point, but you can easilyfind Krugman making the same arguments on his blog if you’re curious.

**In fairness to Krugman and Easterly, these books were written a while ago, and I’m sure they have updated their positions since then. I only wish to show that economists use this tactic, not that any one economist endorses any particular position.

Great post, but what would economists “opening up their theories” actually entail? Using more footnotes in op-eds or more qualifiers in TV interviews? Changing undergrad economics education? Trying to use simpler models?

Economists should take a critical look at the situations under which a theory can be applied, and how applying it under different conditions can alter its conclusions. In particular I mention the Lucas Critique and comparative advantage in the post.

“Economist’s simple stories often capture some truths, which is why they will defend them to the death. But too often this becomes a matter of protecting a core set of beliefs, and being unwilling to apply them in new ways or even abandon them altogether. So economists end up deferring to their framework when it isn’t appropriate, or only interpreting it in their preferred way, particularly when they communicate their ideas to the public. The result can be that misleading conclusions about the economy remain prominent, even when economist’s own frameworks, interpreted completely, don’t necessarily imply them. Perhaps if economists were more willing to open up their theories, which can sometimes feel like something of a black box, these misinterpretations would be exposed.”

I struggle with this paragraph because I want economists (and others engaged in policy making) to argue their ideas/beliefs/etc., which often entails a lot of work and personal sacrifice, and be thoughtful and open to engaging the ‘other side’, which entails a willingness to in a sense admit that work and personal sacrifice was, in some sense, wrong.

Economists must put their heart and soul into their frameworks but also display no attachment to them whatsoever in the face of criticism!

‘Opening up’ is a vague term I used so people could all sit and nod their heads in agreement.

What I mean is taking a critical look at the situations under which a theory can be applied, and how applying it under different conditions can alter its conclusions. In particular I have in mind The Lucas Critique, which I mention, and comparative advantage – if you follow the link on that you’ll see a brief argument about how it’s not necessarily relevant for industries with EoS.

On balance, economics has been coopted by Corporate interests and are misrepresented by the media, who are beholden to these same Corporate interests. Paul Krugman’s textbook does not match his public rhetoric, and it is set up on balance like the vast majority of economics textbooks—by vast majority, I mean I have not yet seen an introductory textbook that takes a materially different tack.

In order for a body of human thought like economics to be other than completely and eternally orthodox….it must entertain an idea…that is actually different. Some would say that Marxist economic thinking is different, but it really isn’t. Why? Because, in the end its just a reaction AGAINST capitalism, against profit. All reform is reactionary. Marxism is reform. A truly new idea actually transforms the nature of a body of thought….while keeping the better part of the former structures intact and…structurally the same….but now those structures where before they were corrupt and destructive…are now virtuous. For this to happen, again, it must be an idea…and it must be an idea that is ACTUALLY transformative. A transformative idea cannot be transformative….unless it is a humanly resonant idea, and an idea that is deep enough to actually be transformative…by definition. All transformative ideas bring a newness, a qualitative difference and/or an ADDITIONAL element to current ways of thinking and acting.

Finally, ..transformative ideas are always aligned with equally transformative policies. Symmetry between philosophy (ideas) and policies (actions) is the literal process of intention. If there isn’t alignment of ideas and actions then either you have a less than adequate idea or a policy which does not actually align with an adequate idea. Actually we have both of these types of misalignments presently. Free market theory is an adequate idea because it asserts the need for freedom. Too bad it reeks of self interest and the will to power of the interests and individuals extant within it. Actually these same free market theorists curiously seize upon profit as an adequate basic idea, which it isn’t, in fact it isn’t an idea so much as an abstraction, an abstract overlay of humanly resonant ideas, which ideas it actually inhibits. This cognitive dissonance obviously prevents alignment of idea and policy and so the intention of freedom.

You say: “All transformative ideas bring a newness, a qualitative difference and/or an ADDITIONAL element to current ways of thinking and acting”.

Ideas do not do anything: they only exist in people’s minds (which at moments you seem to acknowledge, as when you said “…unless it is a humanly resonant idea”, just to forget that people are conditioned by their reality).

Let me give you an example: I am pretty sure everyone reading accepts the idea that “universal peace” is a good thing. And I do mean everybody (well, perhaps not the psychos who lurk everywhere on the net): right-wingers, left-wingers, centrists. And where is “universal peace”?

As far as I can tell, it is nowhere to be found. Why? Don’t most everybody acknowledge it as a good thing?

I suppose it’s not controversial to say “universal peace” does not exist for many reasons. I’d add that chiefly among these because objective, real, **material** conditions make “universal peace” impossible.

Keep these **material** conditions unchanged and the idea, transformative or not, is just that: idea.

This is not necessarily a critique of your reply to my post because I completely agree with its insights. However, when one writes about ideas it is all too easy to assume that the person writing is not aware of the need to follow through with policies
(actions) aligned with them. And that is what I was doing in the final paragraph of my post.

It is important to be aware of the lack of philosophically adequate ideas in our econ/financial/monetary systems….and equally as important to correct the misalignment and/or lack of policies with actually adequately wise ideas.

I have said in various places on the web that a mass social movement is necessary for change to take place. Ultimately it will come down to a political fight if REAL change is to occur, but as Victor Hugo wrote: “There is one thing stronger than all the armies in the world, and that is an idea whose time has come.”

I am not speaking only or even mainly about people acting according to their ideas. Sure, that’s important, but that’s not what I mean. I am talking about objective conditions that may facilitate or not some kind of social transformation.

Bear with me. I’ll use another, hopefully better, example.

I think it safe to say that the abolition of slavery south of the Mason-Dixon Line could never have been achieved without violence, no matter how many dedicated people had tried.

The economy of the South was largely dependant on the labour provided by the slaves; large and wealthy slave owners, for instance, even if they could be persuaded of the evil of slavery, just could not set their slaves free: if they did, they would no longer be wealthy. Further, for these wealthy slave owners, slavery was right and good and natural: they were educated to see it that way. For them, what was wrong, evil and unnatural was the abolition.

The southern states politicians, even if they could be convinced of the right assisting the slaves, would never turn their backs on the slave owners: people who, to all effects, are pillars of the community, big donors and generally, their business partners, friends and relatives.

No matter how genuinely people believed and how hard they tried to spread the word, actually, the idea, there was little that could be done to achieve a peaceful change from within those states.

The conditions just were not there: “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.”

One of the things that puts me off Marxism is that in many ways it shares a similar framework with neoclassical economics, as you point out.

However at the same time I don’t think it should be an explicit mission to overturn every axiom, framework or concept used by the dominant paradigms. After all, you could end up throwing out something good.

I’ve read that book by Dani Rodrik…good choice on your part, Unlearningecon, as it is a great book.

As for nominal-wage/money-wage rigidity…a Professor of Economics at Yale University, Truman Bewley, has published a book about ten years ago or so on this matter. The book was actually an exercise in field-work, and it’s called Why Wages Don’t Fall During A Recession.

Essentially, it provided very good support for J. M. Keynes’s observations in Chapter 19 of The General Theory, and not so much support for the theoretical economists who stuck closer to the classical school on this matter. One source that supported Bewley’s findings, and that Bewley himself cited, was a 1990 article written by George Akerlof and his wife, Janet Yellen. (And just for the record, Bewley does cite a number of Akerlof’s journal articles on labour economics in the book.) Please see the link below.

Misesian and Rothbardian economists (I am loathe to call them Austrians, as they tend to believe in some variant of equilibrium, something which as G.L.S Shackle showed is fundamentally at-odds with a subjectivist approach to economics) twist it the other way round.

They see the entire non-Misesian approach to economics as favouring the collective, by using aggregates which they contend have no connection to individual human action. The extreme Misesian position is that austerity is good, irrespective of what it does to RGDP and unemployment. (Of course this position is entirely incoherent as the aggregates they so detest are the very emergent phenomena of economics, but I digress)

So to what extent economics is ideological depends on the ideology of the claimant. From a socialist perspective, the establishment looks rightist. From a Misesian perspective it looks collectivist. To me, the establishment (equilibrium, rational expectations, utility maximisation, generalised supply and demand curves, etc) looks methodologically and epistemologically blind, rather than ideologically biased.

Great phrase! Misesian Austrianism is a bastardisation of subjectivist economics.

Actually the more I read Mises the more I think he’s completely neoclassical (with a good streak of angry old man). For example he even starts using ceteris paribus neoclassical math here — http://mises.org/efandi/ch4.asp

Rothbard hated Lachmann and Shackle (the true subjectivists!) who took Austrian economics to a logical conclusion where subjective expectations and divergent imagination render capitalism fundamentally unstable and non-self-equilibrating. In other words, into breaking Say’s Law, allowing for the possibility of demand-side recessions, etc!

This is why devoted students of Menger and Bohm-Bawerk who have truly taken subjectivism to heart will continue to drift over into Post-Keynesianism like Shackle did and as I have done.

Reading that just makes me think how off neoclassical and Austrian economics really are. Does Mises really think things run that smoothly in the world? That higher wages automatically mean higher prices, less production and lower employment? Why does the producer in his example have no power? I wonder how much better economics would look if it restarted uninhibited by such assumptions.

I am hardly Post Keynesian, but yes if one views Economics from the Lachmann-Shackle perspective, Post Keynesians are in a sense ‘more Austrian’ than the Misesians and Rothbardians … What irony.

I think the separating line between Neoclassical and Heterodox economics is whether your reasoning includes some reference to general equilibrium… Clearly, the Misesians fall into this category with their notion of the evenly-rotating economy. Some Austrians (followers of Lachmann-Shackle, etc) who pursue genuinely subjectivist economics are truly heterodox.

“I am hardly Post Keynesian, but yes if one views Economics from the Lachmann-Shackle perspective, Post Keynesians are in a sense ‘more Austrian’ than the Misesians and Rothbardians … What irony”

Its interesting that you say that, I have heard some pretty well made arguments that the post-Keynesians and Austrians really do have a lot more in common than you would think. At least with traditional Austrian subjectivist sensibilities.

I also agree with Aziz and Unlearning that contemporary Miseseans really have diverged quite substantially from their subjectivist roots in an ironic way. Miseanism/Rothbardianism is really more of a social philosophy rather than an economic one. Which is one reason why they annoy the hell out of me, also in some ways I can’t help but think that contemporary Austrians just look like amateur hour to me. Most of the famous “Austrians” out there aren’t even economists by training, they are people like Peter Schiff, Ron Paul and Tom Woods. To me its quite obvious that their views are based more on political preference rather than conclusions rooted in actual economic observation. Not to mention that their cult like nature and insistence that they are right is incredibly annoying.

This is probably why they tend to resort to conspiracy theories to explain things like the recent gold crash, because they have become so entrenched in their worldview that they can’t go back and revise it because to do so may undermine their political agenda. To me this is where I lose all respect for Austrians, the true mark of an intellectual and a scientist is to have the ability to adapt their theories to new information. Clearly they are politics first and economics second, so its very hard to take any of their work seriously because it is so painfully obvious that they have an agenda. I know that Post-Keynesians tend to be more to the left but they really don’t have an obvious political agenda like the Austrians do.

I don’t see why pro-market is “Right” while “Government intervention” means “Left”. You (rightfully) criticize the “Government vs. Market” false dichotomy that some economists think exist, yet at times you refer to those holding ideas in favor of market liberalization as “the ones on the Right” and refer to those supporting Welfare intervention as being “the Left”; and to me this just seems the same false dichotomy in new clothing. If anything, the most pro-market people i know are radical Left-wingers themselves, and to me American Social-Liberalism always seemed more “center-right” than “center-left”.

It’s just a matter of conventions and definitions. Left-right axis might refer either to political or to the economical spectrum, but the correct interpretation is usually extracted from the context.
AFAIK, in the Western nations free-market views correlate with political authoritarianism, i.e. socialist authoritarians and free-market libertarians are actually a minority.

From what i know, “Left” means “opposition to current hierarchies/power relations, support for revolution or reform” while “Right” means “support for current hierarchies and traditions, opposition to reform”, it doesn’t necessarily go down into “political authoritarianism” (and hell, the Jacobins, the ones who defined “the Left”, were very authoritarian).

From personal experience with political debate, sometimes being “Left” and “Right” have more to do with the person’s mindset and worldview than with their proposed policies. Let me explain: “Right-wing” people usually have an elitist view of society, the idea that the elite has the right to rule (be it due to “competence/entrepreneurship” or due to “divine right”) and that the lowest in the social hierarchy deserve their fate (Malthusian and Social Darwinist ideas being held by people with out they even knowing is the biggest source of right-wing thinking, if you ask me). For that reason i always find the stereotypical Objectivist-Libertarians to really be the “right-wing” ones, as they hold that big entrepreneurs are god-like geniuses while the poor are lazy people on welfare, and they believe redistributing wealth downwards is the most dangerous thing the State can do. Ludwig von Mises also had a bit of an elitist view of society, as his letters to Ayn Rand and “The Anti-Capitalistic Mentality” explicitly show; and there’s also the Hans-Hermann Hoppe following crowd with their idea of a “natural elite” ruling the An-Cap world, definitely all of those are Right-wing people.

Meanwhile there are many Libertarians who have a huge preoccupation with the poor and who don’t really believe anyone is ‘better’ than anyone else or that the poor are to blame for their poverty. And then there are Mutualists and Geolibertarians who believe a free-market would give everyone the opportunity to develop their faculties and become their own entrepreneurs, making society much more equal. Those defend free-markets as much as the Misean and Objectivist crowd, but can they really be called “right-wing” when their view of society and how free-markets would function is radically different?

And the thing is that i’ve seen many American “Liberals” and “Progressives” being more right-wing than anyone else. Very often i had self-proclaimed ‘progressives’ argue that social safety nets are needed because “people are too dumb to care for themselves and need the Government to”, and that “scientists should use the Government to ‘manage’ society because they know better”. And if you ever thought Progressivism was ever anti-big-business or anti-elite, i recommend you read “The Triumph of Conservatism” by Gabriel Kolko.

And at the same time, i’ve seen many self-proclaimed “Conservatives” being definitely left-wing. Many conservatives seem to imagine their society as something akin to The Shire, and defend tradition on the basis that it unites the local community and should be respected to maintain an united society.

Of course, i’m not trying to generalize either group. Many Conservatives do quite fervently defend outdated traditions on an irrational basis (i’m looking at you, religious fundamentalists) and defend the elites (or “job creators” as they call it) against the “lazy people on welfare who want more taxes”; and many Liberals and Progressives are pretty humble and passionate for the poor. The point i’m trying to make is that “Left” and “Right” is a complex thing, not always defined just by the policies a person defends, and that thinking that pro-free market people are “the Right” is just wrong.

On your first comment: yeah, mea culpa but sometimes I use the government-market dichotomy when making certain points about discourse. If I sat there and explained why the dichotomy is false and tried to say the same thing in a different way – which I would have to in in virtually every post – I think it would get tiresome and boring.

On your second comment:

I completely agree and have actually thought about it before. The real divide in the way people see things is between ‘reactionaries’ and ‘progressives.’ Libertarians are split on this issue. Some are just conservatives who have either decided they don’t care if people take drugs, or pretend to in order to cloak their harsh prescriptions in a veneer of liberty. Others, like yourself, have a view that’s really closer to that of a socialist: anti-authority, landlord, banker, politician, etc etc.

There are also, as you allude to, conservatives from whom you get a strong sense of ‘progressiveness’, in the sense that they are interested mostly in peace and prosperity. In fact many old conservatives were quite critical of capitalism and the continual change and upheaval it brings (after all, Keynes considered himself somewhat conservative).

@ Geo
“From what i know, “Left” means “opposition to current hierarchies/power relations, support for revolution or reform” while “Right” means “support for current hierarchies and traditions, opposition to reform”, it doesn’t necessarily go down into “political authoritarianism” (and hell, the Jacobins, the ones who defined “the Left”, were very authoritarian).”

I think you are forgetting one important thing, leftists don’t just oppose authority but believe in economic equality and wealth redistribution. Ultimately they oppose the hierarchy because it causes those lower down to suffer needlessly so that those on top can maintain their undeserved status. In other words, leftists look out for the poor, and that poverty is a result of an unfair social paradigm, while conservatives essentially believe that the poor are poor because they are inferior and get what they deserve.

So why is intervention often equated with left wing? Well its really a matter of interpretation. That’s nice that you think free markets would bring equality, but some of us simply disagree with that idea. There is nothing to indicate that even the freest of market economies would achieve social equilibrium, class division still emerges in market economies and eventually the markets only serve to exacerbate such inequality. The correlation between deregulated markets and wealth inequality is pretty damning of you free market hypothesis. Leftists have always known this and have always been skeptics of the pure market economy. As a result they tend to favor intervention as they believe that the best and probably only way to achieve their social goals is to look outside the markets with either welfare, wealth redistribution and public ownership of certain enterprises and public goods. And in this day and age the best vehicle for such “extra market” activities is clearly the state.

And as for your comment about Liberals being elitist because they believe “poor people are too dumb to take care of yourself”, you are correct that such a view is conservative, however, I don’t understand how you can look at humanity and not come to the conclusion that a certain portion of humanity are simply morons, and will be morons no matter what social system is in place. That being said, at least Liberals believe in giving them welfare, which is a step above the conservatives/Mises types who simply say “fuck em”.

The key to resolving the left/right conflict is in recognizing that the real conflict is between a re-distributive money system and a Distributive one. A Distributive one widens the money available and also deepens/humanizes the economy as a whole.

But I do have a comment, though. After reading chapter 1, I think the book does not mention Menger, Walras and Jevons (MWJ), who are acknowledged as the original marginalists (neo-classicals).

These guys, however, published their works in Europe, in the early 1870s (thus, before George published Progress and Poverty, in1879). Before them, some authors, like Gossens, had already anticipated many of their ideas (Jevons actually admitted that Gossens anticipated most of his ideas).

This, of course, does not deny that neoclassical economics seems to have an ideological and apologetic nature.

Gaffney’s book focuses more on the Neoclassicals that came after Jevons and Walras and who began treating land and capital as if they were the same thing, pretty much abstracting away the classical theory of rent as a reaction against Henry George. The original analysis by Menger, Walras and etc didn’t challenge George or the law of rent (Max Hirsch for example, was an Austrian who created a synthesis of Bohm-Bawerk’s capital and interest theory with Henry George’s theory of land rent), it was the latter Neoclassicals that did it.

Gaffney also mentions the notion (held by Michael Hudson) that Neoclassicism arose primarily as a reaction to Marx. He argues they did also react to Marx but criticizes the notion that they arose *primarily* to challenge Marx, arguing that if Neoclassicals really did focus mostly on opposing Marx they would not have separated themselves from the Austrian School (who were the ones debating Marxists the most, but still made a distinction between land and capital, rejected general equilibrium and didn’t reject the law of rent yet). He also points out that at the time, Henry George was more popular with both the public and academia than Karl Marx, so it makes sense that an academic reaction to such heterodox theorists would focus on George over Marx.

I remember that in the preface of “The Natural Economic Order” Silvio Gesell went a bit further and argued that reactionary and Neoclassical academics did all in their power to silence Georgist and Proudhonian theorists (making George and Proudhon unknown, rather than trying to prove them wrong) but debated Marx loudly and openly as a stratagem against Socialism because Marx was “easier to deal with” than George and Proudhon and not really something to fear; thus silencing them and propping up Marx would be beneficial to their attempt to make economics a “bourgueois” science for good. I don’t think this is all too accurate (Marx isn’t really “easy to deal with”, unless you straw man the hell out of him), but Neoclassicals did everything in their power to make the world forget George and Proudhon (and also forget most of classical-economics, the heterodox work of Keynes, etc) rather than engage with them, and that sounds like a desperate but efficient way to get rid of the most dangerous critics.

I read that part of Gisell too, I found it a little strange. I think that he wrote that before any of the major Marxist revolutions occurred so I can see where he may view Marxism as tame. But I think that if Gisell had written it that part in the 1920s he would have to revise it slightly. Looking back at the 20th century now I think it is almost laughable to say that Marxism was the least threatening school of socialism, because clearly it seems like the opposite is true.

Wouldn’t Krugman’s argument that $780 billion dollar stimulus was too small count as “left” by this standard? And I’m sure that’s better known to the public than his criticisms of Reich in Peddling Prosperity.

I think you missed the point here (although your comment isn’t necessarily wrong). Krugman would have to go out of his way to explain why the $780 billion stimulus is too small using empirical facts and more complex Keynesian theory. However, when many economists (including Krugman) criticize leftist positions on the economic matters, they use much more basic, elementary economic principle.

This at first might not seem like much of an issue, but it paints the left like they has no idea what they are talking about. In contrast, Conservatives have the right idea, they just might be too extreme. As Unlearning states

” The right’s arguments, though they are taken to an extreme, have economic principles on their side, while the left’s do not.”

Yes, Steve, Rousseau is right. Krugman endorses a number of leftist positions on regulation and will berate those such as the Chicago boys for thinking ‘the market’ will sort everything out. But if someone attacks Krugman from the left – or neoclassical economics as a whole – he becomes almost indistinguishable from said Chicago boys.

When I took my intro to economics in undergrad I realized quite quickly that the safest way for a novice to approach economics is to be conservative. Like many young liberals I had my left wing ideas about what could and couldn’t be done, only to have them shattered when I was taught about supply and demand, perverse incentives, etc. So to be correct it was far easier to just use the free market approach rather than trying to explain how intervention could be good at times.

Though with time as I understood economics better and better(especially monetary economics) I slowly found myself gravitating towards Keynesianism and left wing ideas. Once I understood the fundamentals underlying market forces and how they work I could better visualize how they could be co-opted into alternative schemes rather than just “let the market sort it out”.

The point is that at first I was taught to believe that laissez faire was sophisticated and Keynesians were naive dinosaurs. But over time I realized that Keynesians were actually the sophisticated ones and that skepticism of laissez faire usually happens when one really gets a better understanding of the mechanics of it, rather than just the rhetoric.

I do however think there is a caveat with the left/right thing. People tend to go on a roll and go into absurdity once they choose a side. Once people understand how market pricing works they will use deregulation as an answer for everything. Once people understand liquidity preference and aggregate demand they tend to use government incentives and stimulus as the answer for everything.

The best example of this can be seen in the New Keynesian economists. In the 80s and 90s people like Krugman, DeLong and Bernanke were basically free market economists, touting free trade and believing in the self regulating ability of the market. If you look at them now its obvious that since 2008 they have evolved into radical Paleo-Keynesians, in many ways more extreme than the Post-Keynesians in how far to the left they have swung. The Krugman of the early 90s is a lot different from the Krugman of today. Its amazing how changing your mind about one area of economics (namely, regulation and stimulus for them) can completely transform your opinion on all kinds of issues.

I suppose its probably healthy to go through these kind of shifts. There is still much to learn about markets and clearly we haven’t reached the promised land yet. But it is interesting to note that when it comes to economics people tend to shoot out in one direction rather than trying to be balanced and cautious. Its kind of hard to take a middle path in economics.

The way I try to characterize Left and Right (Libertarians differentiate themselves on a Y-axis, and may fall either Left or Right on the X-axis) is on the fundamental worldview perspective. On the Left, an underlying premise is that people are inherently good and in a fair society, most people will rise to the occasion; on the Right, people are considered to be inherently bad (original sin, and all), and so people require a lot of authority to remain in line. All of this manifests in economics and politics.

Given this fundamental vantage, it is difficult to reconcile positions.This is why to a Leftist, a person receiving public assistance just needs a helping hand, and to a Rightist, this same person is on the dole and shirking.

Yes, the mindset of left and right are usually based as you posted. And mindset, individual philosophy and enlightened psychologies like Maslow, in my opinion, is where we need to look both for individual and systemic solutions.

If you stack two different psychological profiles next to each other and contemplate their meanings I think you will come up with the more accurate mindset.

Profile one: The fact that only 7-10% of us end up in “the big house” while the other 87-90% of remain free and seem to eventually find positive purpose and more happiness as we grow older.

Profile two: The underlying psychology of the current econ/financial/monetary systems is one of scarcity as a necessary dogma, individual insecurity as a necessary goad, a lack of economic security as a virtue and the scorning of any concept of economic or monetary grace as in the free gift.

as per my post #28…that should be….”A Distributive one widens the OPTIONS FOR WHICH money is available and also deepens/humanizes the economy as a whole BECAUSE THAT NEW ADDITIONAL OPTION IS A PARADIGM CHANGING IDEA….THE FREE GIFT OF INCOME TO THE INDIVIDUAL.

And no, this would not be inflationary if one understands the the true problems of the systems (a flaw in the cost accounting discipline) and its monetary effects on individuals. (scarcity of income in comparison to prices)

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